Unnamed electric utilities have signed on to use A123Systems’ lithium-ion batteries to help stabilize the grid, CNET reported this week.

Ric Fulop, vice president for business development at A123Systems, said the company has been working with General Electric to develop batteries to help squeeze more power into the grid, when needed, so that the power supply matches the demand, according to the CNET story. GE, which led a $40 million round of funding for A123 in February, already supplies products such as software to utilities.

The idea of using batteries for the electric grid has long been a Holy Grail in the industry, but the cost and size of the batteries – including all the maintenance and replacement every few years – have been major impediments.

Battery companies have been making some strides, however.

Xcel Energy in Minneapolis, American Electric Power in Columbus, Ohio, and Tokyo Electric Power Co. in Tokyo all have tested sodium-sulfur batteries from NGK Insulators to store power for times of peak demand (see Batteries for the Grid).

The goal behind those projects is to make it possible to get more energy from renewable sources – even if those sources aren’t always available when the most electricity is needed – by storing it in batteries and tapping into it later.

A123’s projects are focused on shorter-term stabilization. That could put them in competition with companies such as Beacon Energy, which is using flywheels to regulate grid frequency (see Beacon Picks Up Speed).

It’s an alluring market, as power fluctuations and outages are costly. Research firm Primen, now part of EPRI Solutions, in 2005 estimated the cost at between $119 billion and $188 billion yearly.

One of the historic challenges with using batteries for the grid has been the need for energy density high enough to store large amounts of power without taking up enormous amounts of space. Lead-acid batteries, for instance, are too large to back the whole grid, take too long to charge, and need to be maintained and replaced regularly.

Lithium-ion batteries could potentially solve the density problem because they can deliver far more energy in a smaller amount of space. But they have generally been considered too expensive for the grid.

Watertown, Mass.-based A123 didn’t immediately respond to questions about the cost of its utility products.

Safety could also be a concern, as some lithium-ion batteries have experienced “thermal runaways” – causing them to overheat or even catch fire (see Batteries Key to Plugging in at Electric Vehicle Symposium and Plug-In Hybrid Catches Fire).

But it sounds as though the company has already hurdled one of the biggest obstacles – getting utilities to sign on.